N.Y. Widens Salomon Investigation
AT&T; Corp. said Friday that New York’s attorney general has subpoenaed documents and correspondence between the phone giant and Citigroup Inc. to determine if a former Citigroup analyst raised his rating of AT&T; to help his firm land large fees in a $10.6-billion stock offering.
AT&T; spokeswoman Eileen Connolly said the company is providing New York Atty. Gen. Eliot Spitzer with information related to its April 2000 offering of AT&T; Wireless tracking shares.
Citigroup was one of the lead underwriters on that record-setting offering, and split about $45 million in fees with Goldman Sachs Group Inc. and Merrill Lynch & Co. The wireless sale came about five months after Jack Grubman, an influential analyst at Citigroup’s Salomon Smith Barney unit, abandoned his bearish view of AT&T; and raised his rating.
Salomon and AT&T; say the rating change was not linked to the underwriting selection. Still, news of the expanded investigation--and the suggestion of involvement by Citigroup Chief Executive Sanford I. Weill--sent Citigroup shares down 3.4% to $34 in New York Stock Exchange trading Friday.
A spokesman for Spitzer declined to comment Friday, but sources said the attorney general is probing whether Weill urged Grubman to change his AT&T; rating in advance of the wireless offering.
Spitzer is conducting a wide-ranging investigation of Wall Street stock analysts, examining whether they intentionally misled investors during the bull market by issuing overly rosy reports that were meant to curry favor with investment banking clients.
Spitzer also sent a request for information to Global Crossing Ltd., the giant fiber-optic network operator that filed for bankruptcy reorganization in January.
Global is one of several telecommunications companies whose relationships with securities firms are under scrutiny by regulators. Salomon, along with Merrill Lynch, handled Global Crossing’s initial public stock offering in August 1998.
A year later, Salomon advised Global Crossing on its purchase of Frontier Corp. and its failed attempt to merge with US West Inc., which was later purchased by Qwest Communications International Inc.
A Global Crossing spokesman said the company was reviewing Spitzer’s request. She declined to say what information he was seeking.
This year, Spitzer released a series of embarrassing e-mails written by Merrill Lynch analysts in which they privately disparaged some stocks as they touted them publicly. After taking a public relations hit, Merrill preempted further legal action by Spitzer by agreeing to pay a $100-million fine and institute reforms.
Grubman, once among the most influential analysts on Wall Street, has been a target of dozens of lawsuits as well as investigations by Spitzer, congressional committees and the Securities and Exchange Commission. He resigned from Salomon last week, taking with him $13.2 million in severance compensation.
“Jack Grubman has been the poster child for the improprieties of Wall Street analysts,” said David Spika, a senior portfolio manager at Banc of America Capital Management who oversees a $288-billion portfolio that includes Citigroup shares. “If they can prove that Sandy Weill had influenced Grubman to change his opinion on AT&T; so that they could do their investment banking, that would be significant.”
Several analysts don’t see that happening.
It is well-known that Weill and AT&T; Chairman Michael Armstrong are friends and served on each other’s corporate boards, said Craig Woker, financial services analyst at investment data firm Morningstar Inc. in Chicago. “But it’s a little bit of a stretch to think that there is a grand conspiracy here.”
Susan Thomson, spokeswoman for Salomon, rejected the notion. “Mr. Weill never told any analyst what to write, and any suggestion that he did is outrageous and untrue,” she said, adding that the firm is continuing to cooperate with Spitzer’s investigation.
AT&T; spokeswoman Connolly also dismissed the allegation, saying that the company’s securities underwriters are selected based on a list of criteria, but that “it’s always about getting the job done.”
Woker said he doubts Salomon would have been desperate to get a portion of about $45 million in fees on the wireless offering. He noted that Citigroup earns nearly $4 billion each quarter.
Weill “wouldn’t have staked the reputation of the firm on what is essentially chump change,” said Woker, who does not own Citigroup shares.
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Times staff writer Walter Hamilton in New York contributed to this report, and Bloomberg News was used in compiling it.
